Solar

West
May 11, 2017

Risk Analysis / Claims Lessons

PV Solar Energy Industry
AGENDA

Risks for PV Solar Project Development

Risks for the PV Solar Parks
Loss Lessons for PV Solar Industry
Summary
Risks for PV Solar Project Development

• Construction risk - Risk of property damage or liability stemming from

errors during the building of new projects.

• Company risk - Risk affecting the viability of the project developer, for
example, risks related to key personnel, financial solidity and technical ability to
execute on plans.

• Environmental risk - Risk of environmental damage caused by the solar

park including any liability following such damage.

• Financial risk - Risk of insufficient access to investment and operating

capital.

• Market risk - Risk of a cost increases for key input factors such as labor or
modules, or rate decreases for electricity generated.
Risks for PV Solar Project Development

• Operational risk - Risk of unscheduled plant closure due to the lack of

resources, equipment damages or component failures.

• Technology risk - Risk of components generating less electricity over time

than expected.

• Political and regulatory risk - Risk of a change in policy that may

affect the profitability of the project, for example changes in levels of tax credit
or incentive programs. Also, this includes changes in policy as related to
permitting and interconnection.

• Climate and weather risk - Risk of changes in electricity generation

due to lack of sunshine or snow covering solar panels for long periods of time.

• Sabotage, terrorism and theft risk - Risk that all or parts of the solar
park will be subject to sabotage, terrorism or theft and thus generate less
electricity than planned
AGENDA

Risks for PV Solar Project Development

Risks for the PV Solar Parks
Loss Lessons for PV Solar Industry
Summary
PV Solar - Supplier Risks

Liabilities of Component Liabilities of Operations &

Suppliers
•Product Liability (Third Party, Safety)
•Workmanship warranties
•Performance warranties
Maintenance provider
•Liquidated damages related to
availability or yield (e.g.
shadowing due to uncontrolled
vegetation growth or soiling)

Liabilities of Developer/EPC
•Damages occurring during General Business Risks
construction •Market change
•Liquidated damages (e.g. delay in •Margin pressure
startup) •Political change
•Workmanship warranties •Growth financing
•Yield warranties •Debt overload
PV Solar - Park Risks 1
Lightning strikes
• Lack or improper lightning protection
leading to destruction of components
• Undetected malfunctions (bypass-
diodes)
Grid overvoltage
• Lack or improper surge protection
leading to component failures
Wind loads
• Mounting structures tear off
• Module pull off or bending
Damage caused by snow loads
• Module breakage
• Frame deformation
• Loss of roof cladding
Damage caused by hail
• Module breakage/cracks
Strong rain
• Landslide
• Stream channels
Fire
• PV systems affected by building fire
• PV systems causing fire
Theft or vandalism
• Loss of infrastructure, e.g. modules, copper
• Damaged fences
Animal impact
• Glass breakage or contamination by birds
• Rodent bites in cable insulation
Grounding and Mounting
• Roof damage due to installation work
• Overloading the roof structure
• Water ingress beneath PV systems
12
PV Solar - Parks Risks 2
Solar Array Design
• Uncertain estimation of environmental
factors (e.g. climate, ammonia, salt,
sand, dust)
• Weak supplier qualification
• Weak components qualification
• Stress - strength alignment (fit for
purpose)
• Layout errors, e.g. cabling, grounding,
electrical dimensioning
• Uncertainty in irradiance estimation
• Using wrong assumptions for yield
prognosis
• Weak O&M planning, e.g. maintenance
intervals, spare part requirements
• Weak EPC qualification
Installation
• Weak material inspection
• Acceptance of improper deliveries
• Undetected installation errors passing through
acceptance audit
• Installation faults that cannot be corrected, get
insufficiently compensated, and leading to
follow-up problems during the lifetime
• Time or cost over-run
Operations
• Downtimes higher than expected
• Inappropriate maintenance intervals
• Spare part demand higher than planned
• Default of warranty providers
• High maintenance effort due to bad setup
• Need for re-powering
AGENDA

Risks for PV Solar Project Development

Risks for the PV Solar Parks
Loss Lessons for PV Solar Industry
Summary
Loss Lessons for PV Solar Industry

If it can happen, it will happen

In a short time, we have already seen a variety of different types of claims

Weather
Wind Storms/Hail - Fence ripped out of the ground and smashed panels: $300,000
Hail causing hairline fractures in the panels, potential for total loss
Lightning – struck a transformer, total loss: $400,000
Rain – During construction, heavy rains transferred disturbed soil from property and washed
sediment into residential wells, on-going claim, will be in the millions

Human Error
Transformer improperly installed, went up in flames: $250,000
Roof top panels ripped off due to improper design/installation of racking: $500,000
Substandard roof top transformer was installed, total loss to transformer and damage to roof
of building. Loss is in excess of a $1,000,000.

Theft
Everything from security cameras to copper wiring to electrical components
Business Interruption
The real cost of claims

Business Interruption
Transformers and Inverters are key components to any solar farm.
Important to focus on minimizing any downtime; how accessible are replacement parts?

Common loss example: Transformer fire

Value of transformer: $500,000
Average BI for a 10MW solar farm in Ontario is about $5M- $7M annually, approximately
$500,000 per month in lost income
Transformer fire = $500,000 + 6 – 8 months of downtime = $3.5M - $4.5M claim

Contingent Business Interruption

Not as common, but still an exposure to consider
Strong Wind Storm knocked out a non-owned substation of a 10MW solar farm, over 2
months to reconnect to the grid, CBI claim has been submitted
What does the future hold?

The future is sunny

- Advancement in technologies
- Costs are coming down
- Improved efficiencies, hail resistant panels, etc.
- Longer life expectancies

Challenges Ahead
Rapid Expansion leads to the following:
- Improper planning & design
- Competition for capital leads to cost reductions; purchase of substandard equipment
- Hiring inexperienced contactors
- Not budgeting for proper service and maintenance, reliance on manufacturer warranties

Key Takeaway
Regular service and maintenance by the OEM is critical to the success of any solar farm
OPEN DISCUSSION LOSS LESSONS

JACQUES O’BRIEN

SENIOR RISK ENGINEERING SPECIALIST

AGENDA

Risks for PV Solar Project Development

Risks for the PV Solar Parks
Loss Lessons for PV Solar Industry
Summary
Summary

5 Primary Risk Stages

Summary

Principals of Effective Risk Management

Risk Analysis - is the process of defining and analyzing the dangers to

individuals, businesses and government agencies posed by potential
natural and human-caused adverse events.

Risk Control - is the method by which an organization evaluates

potential losses and takes action to reduce or eliminate such threats.

Risk Transfer - is a risk management and control strategy that

involves the contractual shifting of a pure risk from one party to another.
One example is the purchase of an insurance policy, by which a
specified risk of loss is passed from the policyholder to the insurer.
Questions?

Grant Robinson – Managing Director

John Boone – Client Manager

Lance Fairlie – Senior Underwriting Officer

Jacques O’Brien – Senior Risk Engineering Specialist

Solar West
May 11, 2017